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Question
The following is the balance sheet of James and Justina as on 1.1.2017. They share the profits and losses equally
| Liabilities | ₹ | ₹ | Assets | ₹ |
| Capital accounts: | Building | 70,000 | ||
| James | 40,000 | Stock | 30,000 | |
| Justina | 50,000 | 90,000 | Debtors | 20,000 |
| Creditors | 35,000 | Bank | 15,000 | |
| Reserve fund | 15,000 | Prepaid insurance | 5,000 | |
| 1,40,000 | 1,40,000 |
On the above date, Balan is admitted as a partner with a 1/5 share in future profits. Following are the terms for his admission:
- Balan brings ₹ 25,000 as capital.
- His share of goodwill is ₹ 10,000 and he brings cash for it.
- The assets are to be valued as under:
Building ₹ 80,000; Debtors ₹ 18,000; Stock ₹ 33,000
Prepare necessary ledger accounts and the balance sheet after admission.
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Solution
Revaluation Account
| Dr. | Cr. | ||||
| Particulars | ₹ | ₹ | Particulars | ₹ | ₹ |
| To Debtors A/c | 2,000 | By Building A/c | 10,000 | ||
| To profit on revaluation transferred to | By Stock A/c | 3,000 | |||
| James Capital A/c | 5,500 | ||||
| Justina Capital A/c | 5,500 | 11,000 | |||
| 13,000 | 13,000 | ||||
| Dr. | Capital Account | Cr. | |||||
| Particulars | James | Justina | Balan | Particulars | James | Justina | Balan |
| To Balance c/d | 58,000 | 68,000 | 25,000 | By Balance b/d | 40,000 | 50,000 | - |
| By Reserve Fund | 7,500 | 7,500 | - | ||||
| By Bank A/c | - | - | 25,000 | ||||
| By Revaluation | 5,500 | 5,500 | - | ||||
| By Bank A/c (Share Goodwill) |
5,000 | 5,000 | - | ||||
| 58,000 | 68,000 | 25,000 | 58,000 | 68,000 | 25,000 | ||
| By Balance b/d | 58,000 | 68,000 | 25,000 | ||||
| Dr. | Cash Account | Cr. | |
| Particulars | ₹ | Particulars | ₹ |
| To Balance b/d | 15,000 | By Balance c/d | 50,000 |
| To Balan Capital A/c | 25,000 | ||
| To James Capital A/c | 5,000 | ||
| To Justina Capital A/c | 5,000 | ||
| 50,000 | 50,000 | ||
Balance Sheet as on 01.01.2017
| Liabilities | ₹ | ₹ | Assets | ₹ | ₹ |
| Capital Accounts | Building | 7,000 | |||
| James A/c | 58,000 | Add: Appreciation | 10,000 | 80,000 | |
| Justina A/c | 68,000 | Stock | 30,000 | ||
| Balan A/c | 25,000 | 1,51,000 | Add: Appreciation | 3,000 | 33,000 |
| Creditors A/c | 35,000 | Debtors | 20,000 | ||
| (−) Unvalued | 2,000 | 18,000 | |||
| Bank | 50,000 | ||||
| Prepaid insurance | 5,000 | ||||
| 1,86,000 | 1,86,000 |
APPEARS IN
RELATED QUESTIONS
State 'True' or 'False'
Profit on revaluation account is distributed between the old partners on admission of a partner.
Write a word/phrase/term which can substitute the following statement.
An account opened to adjust the value of assets and liabilities at the time of admission of a partner.
The balance sheet of Medha and Radha who share profit and loss in the ratio 3: 1 is as follows:
| Balance Sheet as on 31 March 2018 | |||
| Liabilities | Amount (₹) | Assets | Amount (₹) |
| Sundry Creditors | 80,000 | Cash | 78,000 |
| Bills Payable | 20,000 | Sundry debtors | 64,000 |
| Bank overdraft | 20,000 | Stock | 40,000 |
| Capital A/c: | Plant and Machinery | 60,000 | |
| Medha | 1,20,000 | Furniture | 22,000 |
| Radha | 40,000 | Land and Building | 32,000 |
| General reserve | 16,000 | ||
| 2,96,000 | 2,96,000 | ||
They decided to admit Krutika on 1st April 2018 on the following terms:
- Krutika is taken as partner on 1st April 2017. She will pay 40,000 as her capital for 1/5th share in future profits and Rs. 2,500 as goodwill.
- A 5% provision for bad and doubtful debt be created on debtors.
- Furniture be depreciated by 20%.
- Stocks be appreciated by 5% and plant and machinery by 20%.
- The Capital accounts of all partners be adjusted in their new profit sharing ratio by adjusting the amount through current account.
- The new profit sharing ratio will be 3/5:1/5:1/5 respectively.
You are required to prepare profit and loss adjustment A/c, Partner’s Capital A/c, Balance Sheet of the new firm.
What is meant by the revaluation of assets and liabilities?
How are accumulated profits and losses distributed among the partners at the time of admission of a new partner?
What are the journal entries to be passed on revaluation of assets and liabilities?
Hari, Madhavan and Kesavan are partners, sharing profits and losses in the ratio of 5 : 3 : 2. As from 1st April 2017, Vanmathi is admitted into the partnership and the new profit sharing ratio is decided as 4 : 3 : 2 : 1. The following adjustments are to be made.
- Increase the value of premises by ₹ 60,000.
- Depreciate stock by ₹ 5,000, furniture by ₹ 2,000 and machinery by ₹ 2,500.
- Provide for an outstanding liability of ₹ 500.
Pass journal entries and prepare a revaluation account.
Ravi and Gaurav are partners in a firm. They want to admit Dhruv for `1/4`th share in profit. For this, they revalued their machinery from ₹ 30,000 to ₹ 40,000 and creditors from ₹ 1,10,000 to ₹ 1,00,000. What journal entry will be passed:
Which account will be prepared to record the adjusting amount of assets and liabilities?
Ram and Shyam were in partnership sharing profits and Losses in the proportion of 3 : 1 respectively. Their Balance sheet as on 31st March, 2020 stood as follows:
| Balance Sheet as on 31st March, 2020 | ||||
| Liabilities | Amount (₹) | Assets | Amount (₹) | |
| Sundry Creditors | 80,000 | Cash | 80,000 | |
| Bills Payable | 42,000 | Sundry Debtors | 64,000 | |
| Capital Accounts: | Land and Building | 32,000 | ||
| Ram | 1,20,000 | 1,60,000 | Stock | 40,000 |
| Shyam | 40,000 | Plant and Machinery | 60,000 | |
| General Reserve | 16,000 | Furniture | 22,000 | |
| 2,98,000 | 2,98,000 | |||
They admit Bharat into partnership on 1st April 2020. The term is that
- He shall have to bring in cash ₹ 40,000 as his Capital for 1/5th share in future profit and ₹ 20,000 as his share of Goodwill.
- A provision for 5% doubtful debts to be created on sundry debtors.
- Stock should be appreciated by 5% and Land and Building be appreciated by 20%.
- Furniture to be depreciated by 20%.
- Capital Accounts of all partners be adjusted in their new profit-sharing ratio through Cash Account.
Prepare:
- Profit and Loss Adjustment Account
- Partners' Capital Account
- Balance Sheet of the new firm.
